Australia sees current housing shortage of 250,000

A great article for for homeowners looking for investment property advice. According to research provided by ANZ, the Australian housing market currently remains in significant undersupply.
Over the national forecast we have a shortage of around 250,000 home, and while lower then previous estimates this shortfall is assured to remain above 200,000 beyond 2018.

Even with the recent residential and property investment booms, in the markets of Sydney, Melbourne and Brisbane in the greater part of the last three years, home-building levels have only just reached a point suitable for current population growth.

That was largely due to an increased completion rate for apartments in Melbourne, Sydney and Brisbane.

“The surge in higher-density housing construction has driven housing construction levels to match annual underlying housing demand for the first time since 1995,” ANZ senior economists David Cannington said.

The last time the Australian housing market was deemed in balance was in 2001. Since then annual residential builds have grossly under marked supply by roughly 18,000 homes, sky rocketing to about 250,000 on the latest estimates. “To erase this shortage would take more than a year of housing construction at current unprecedented levels with no increase in the underlying housing requirement, i.e. no population growth,” Mr Cannington said.

Despite this it is expected easing of construction activity this year, meaning the supply imbalance would only see little change over the coming years, even if population growth slows.
Australia’s homes in need

NSW – 100,000
WA – 44,000
Victoria – 42,000
Queensland – 25,000
SA – 13,000
NT – 6,000

Why property investment? Here is just one of many reasons

As we all know population growth is inevitable, Australia is a young fast growing country with no signs of slowing down. Population growth is a key factor when considering investment property and your financial future.

Australia’s current population is 23.9 million and climbing, we are currently seeing a new born just under every two minutes, and one death just under every 4 minutes. We are also receiving a net gain of one international migration every two and a half minutes, this is currently giving us an increase of 1 person every one and a half minutes.

When learning how to get started in property investment, knowing this information is a huge asset. Natural growth and overseas immigration has always been good news for property investment. With having this brief layout of information in mind, do you think housing will/could lose its demand?

Rental yields cannot keep up with Melbourne, Sydney price growth

Rental yields across Australia’s two biggest cities Sydney and Melbourne are currently seeing a record low due to the capital growth of those markets. Great news if you received property investment advice early on but this very low yield increases risk for property investors looking to enter into those markets at this late stage. It is a case of “you have missed the boat” I am afraid.

In the past we have seen a huge increase in price of housing in Melbourne and Sydney, on average what cost $500,000 just a few short years ago is now reaching over $1,000,000 with this price increase rental yields haven’t been able to keep up. On average, the net annual cost of servicing a property investment on a median priced three-bedroom house in Sydney funded with an 80% loan to value mortgage was $41,300 as of December 2015, up 78% from just three years earlier. In Melbourne the cost was $26,674, up 63% in the same time frame.

Rather then try and get into Sydney and Melbourne at this late stage, clever investors are looking to the north with the Gold Coast and Brisbane holding their rental yields.

Great news of Interest Rates.

Great news for investors today as the RBA has decided to keep interest rates at historical lows of 1.75%. Reading through the RBA commentary we can determine what factors have influenced the RBAs decision not to move. While the labor market is expanding and more jobs are being created, overall wage growth has kept inflation low. This has eased the cost of living for families.

Lower interest are not only good news for investors but also for Australian businesses looking to put money into expansion. Our low dollar means that exports are also looking stronger.

With interest rates so low at the moment and yields so high, it has never been a better time to buy and hold investment property. If you buy the right property at the moment it should be cash flow positive.

Are you missing out on an extra $5,784 off your tax?

As the laws currently stand investors are allowed to claim expenses incurred in holding their investment property against their normal income earned. However, a recent study showed that many people are missing out.

According to statistics released by the Australian Taxation Office (ATO), 2.8 million property investors claimed deductions relating to their rental property over the 2012 – 2013 income year.

Among these investors, just over one million received an average capital works deduction of $2,113 while almost two million property investors claimed an average deduction of $1,179 for depreciation of plant and equipment, making the total average deprecation claim made by property investors who claimed both years an average of $3,292.

Comparing with the statistics released for the 2011-2012 income year, there was an increase close to 100,000 in the total number of investors claiming deductions for their rental properties.
Despite this increase in people claiming, there was next to no change in the overall deductions claimed for capital works or plant and equipment assets. The average capital works deduction compared with the previous year increased by $83 and the average plant and equipment deduction increased by $40.

Based on data collected from tens of thousands of quantity surveyor’s depreciation schedules, the average deduction found claim within this time was $9,076 for both plant and equipment and capital works, an increase of $5,784 that investors could be claiming.

It can therefore be reasonably presumed that investors are not calculating or claiming their depreciation deductions correctly. This “missed claim” could easily equate to an extra $50 per week in the average investor’s pocket, if done correctly.

I would advise everyone to check their claims thoroughly and have an expert prepare a QS report to no deductions are missed.

Property investment to beat inflation

Inflation is that nasty thing that erodes away the buying power of our money. Why 30 years ago, you could buy your lunch and drink etc and still have change out of $5. Hence the idea that keeping money in cash in a Milo tin under your bed is seriously flawed due to the fact that that money is actually losing value every day that it sits there. Even money held in cash in a bank getting interest is maybe just keeping its head above water as the interest received may not even be as high as the rate of inflation.

The idea of investing is to not only to allow your “savings” to keep its head above water but to also significantly beat inflation. You are therefore building wealth.
One of the best ways to do this is to invest in growth assets like property. Property is one of the better assets to invest in because it is very safe but tends to grow consistently much faster than inflation.

For example, the latest national CPI figures for Australia’s capital cities show that during the year ending March 2016, the annual inflation rate was 1.3%.

During this period, the combined capital city home prices increased greatly by 7.3%, close to six times the annual inflation rate.

It is widely known that over a long term, property values have increased at a much faster rate than inflation.

The figures above are important to property investors as they are the key reason why many people decide to invest in real estate. To protect themselves against the impact of rising inflation and to generate personal wealth over the long term.

With the weekly wages in Australia recording very modest rates of growth, property investment is an excellent way for you to build ongoing wealth.

However, when looking for investment property it is very important to undertake careful research and get some qualified advice as to how to structure your purchase and build your portfolio.

House prices to go up 10%

A very positive comment was made by Christopher Joye from the Australian Financial Review recently when he referred to house prices. “House prices are going nuts again” was his comment.
Joye advised that he had uplifted his growth forecasts for 2016 based on the back of the further cut in interest rates down to 1.75%.

“..given the current yield curve expectations for a second cut in 2016, my central case is house prices run at three to five times wages, which represents growth of between 6% and 10%.”
The numbers tell the story:

  • 4% capital gain in the past quarter already
  • Brisbane and Adelaide alone have shown an increase of 7.4% and over the last 12 months another 5.6%, according to Corelogic RP Data, which Joye has noted seemingly modest, is 3.5 and 2.7 times the pace of wages growth.
  • RBA Interest rates at historical lows (1.75%)

With the predicted changes to superannuation and low interest rates, property across Australia could be in for a further boost. Especially those markets such as Brisbane and the Gold Coast that are on their upward cycles.